Investing in Jamaica
WHILE investing became all the rave in 2019, which was a record year for the Jamaica Stock Exchange (JSE), a lot of people didn’t realise that their stockbroker offers other services apart from being a medium to the stock market.
As a result, a lot of people aren’t aware of the other services a broker may offer, which might make it possible for them to grow their wealth even further. In today’s article, we’ll explore these additional services and how they can benefit you.
Currently, there are 15 brokers who can facilitate the direct buying and selling of stocks with FHC Investments Limited being the latest broker to be approved. This simply means that when you have an equity account with these brokers, you can purchase and sell publicly listed companies on the JSE. All it takes to open an account is a TRN (tax registration number), Government-issued ID, proof of address, proof of income, and two character references.
However, this same equity account can become a source of capital when you want to invest additional funds or have an emergency. Several brokers, or through their commercial banking arm, offer margin loans against equity holdings. So, if you have $1 million in equities, a broker might allow you to borrow up to 50 per cent of the value of your portfolio to be repaid over five years or longer at an interest rate of 8 – 12 per cent. Thus, you could invest that $500,000 in a stock which can possibly give a 10 per cent dividend yield or in different stocks over the tenure of the loan with the best-performing stock in 2021 providing a 405 per cent capital appreciation.
This margin loan doesn’t only extend to stocks as collateral but also includes bonds, unit trusts and repurchase agreements. Unit trusts and other managed products offered by a broker allows you to borrow 70 per cent of the fund’s value as seen with VM Wealth Management Limited. Although some brokers have restrictions on certain stocks, margin loans are offered by brokers such as Mayberry Investments Limited (MIL), Proven Wealth Limited (PWL), Barita Investments Limited, and Sagicor Bank Limited.
If you want to buy a stock and can’t find the volumes that you’d like on the market, you can always ask your broker to arrange the trade with another client or broker who might want to sell a stock. The converse also applies where you’d like to sell a stock and not depress the stock price. The advisors at the broker also offer advice on how to structure a portfolio and finding the best products which suit your investment goals. This is a service offered to all clients of a broker and should be used well to ensure one can optimise strategies such as tax loss harvesting or carry trade as a way to provide greater value to you.
Some brokers offer cambio services whereby you can exchange your Jamaican dollars for foreign currencies such as United States dollars, Canadian dollars, euro and British pound sterling. While a bank might offer you $145.40 to convert your USD to JMD, a broker such as Mayberry can offer you at $151.70. This would allow you to get $6.30 JMD more for each dollar converted.
Different brokers or their affiliates also offer approved retirement schemes (ARS) or pension funds to persons who aren’t already contributing to an ARS. While legislative changes are coming which will allow persons to contribute to an individual retirement scheme along with an ARS, persons can sign up with brokers such as PWL, Barita or JN Fund Managers Limited who offer and manage these different schemes. Some of these plans automatically vest once contributions start and offer the traditional benefits seen with any other pension plan. Apart from brokers, some insurance companies such as Scotia Jamaica Life Insurance Company Limited offer ARS plans which was number two in contributions last year.
Several firms offer repurchase agreement products, which is simply a fixed-term product which tends to be higher than a certificate of deposit (COD) offered by a commercial bank. This can be seen by a broker like Barita offering 4.15 per cent over a year on $1 million compared to a bank which will offer two per cent over the same time frame. These brokers also tend to arrange different fixed income products for their corporate clients and offer it to their general clients as well. Though most bonds tend to usually require $1 million and greater to subscribe, some offerings require $100,000 as the minimum like the VM Investments Limited and NCB Financial Group Limited bonds seen recently. There are also unit trust or mutual funds which give you exposure to these asset classes with a fraction of the buy-in required, as in the case of a bond with a $1 million minimum versus $500 with a unit trust.
While many of these services listed so far have been looked at from an individual angle, brokers and other securities dealers also offer deal arrangements for companies. These include an initial public offering as seen with EduFocal Limited, advisory services like Wigton Windfarm Limited with Mayberry Investments, contingent liabilities and debt arrangements like Future Energy Source Company Limited with NCB Capital Markets Limited. Other products which aren’t typically discussed include derivatives such as forward contract arrangements to lock in rates and avoid volatility.
“The investment banking team works closely with corporate clients to originate, structure and execute capital market transactions. Such transactions may include public or private equity and debt instruments, preference shares, mezzanine financing, various credit solutions and business advisory services. We are also an approved financial institution (AFI) of the Development Bank of Jamaica (DBJ). Through this programme we offer financing to companies in critical economic sectors such as manufacturing, distribution, tourism services,” said manager of investment banking at PWL Chrisloy Robinson.
— David Rose